Esker-Billentis Market Report 2014

E-Invoicing / E-Billing Key stakeholders as game changers

2014

Bruno Koch Billentis

May 6, 2014

Sponsored by

E-Invoicing / E-Billing 2014 Whilst every care has been taken to ensure the accuracy of this report, the facts, estimates and opinions stated are based on information and sources which, whilst we believe them to be relia-ble, are not guaranteed. In particular, they should not be relied upon as being the sole source of reference in relation to the subject matter. No liability can be accepted by Billentis, its employ-ees, or by the author of the report for any loss occasioned to any person or entity acting or failing to act because of anything contained in or omitted from this report, or because of our conclusions as stated. All rights reserved. Nobody is entitled to publish this report in electronic or printed form without written permission of the author. It is the exclusive right of the author, the sponsors (and, if ex-plicitly permitted, industry portals) to distribute copies of the report. Recipients may not be anonymous: Distributors either know already or collect the contact data before providing the re-port from a non-public area on their web site or via email attachment. Readers may reproduce selected parts of the report content for non-commercial use if the source and report date is acknowledged. Author contact: Bruno Koch Billentis 9500 Wil Switzerland Phone: +41 71 911 60 32 Email: [email protected] www.billentis.com Document No: Billentis060514

C B. Koch, Billentis Page 2

E-Invoicing / E-Billing 2014 Contents

0. Executive Summary ............................................................................................................................. 9

1. Introduction ....................................................................................................................................... 10 1.1 The purpose of the Report ......................................................................................................... 10 1.2 Methodology ............................................................................................................................. 10 1.3 Terms and definitions ................................................................................................................ 10

2. The market ......................................................................................................................................... 12 2.1 Market volume .......................................................................................................................... 12

2.1.1 An estimate for the global volume ............................................................................. 12 2.1.2 The European bill/invoice volume ............................................................................. 13 2.1.3 Relevance of cross-border traffic ............................................................................... 14

2.2 Motives for replacing paper bills/invoices ................................................................................ 14 2.3 Evolving market models ............................................................................................................ 14

2.3.1 Overview .................................................................................................................... 14 2.3.2 Supplier Direct Model ................................................................................................ 15 2.3.3 Buyer Direct Model ................................................................................................... 17 2.3.4 Direct Model as a Service .......................................................................................... 18 2.3.5 Network Model .......................................................................................................... 19 2.3.6 Hybrid Model ............................................................................................................. 20 2.3.7 Total Invoice Management ........................................................................................ 20

2.4 The global landscape ................................................................................................................. 22 2.4.1 Market evolution and maturity ................................................................................... 22 2.4.2 Current optimisation focus of geographical regions .................................................. 24 2.4.3 The Service Provider landscape ................................................................................. 25 2.4.4 Asia & Pacific region ................................................................................................. 26 2.4.5 Africa ......................................................................................................................... 28 2.4.6 North America ........................................................................................................... 28 2.4.7 Latin America ............................................................................................................ 29

2.5 The European Market ................................................................................................................ 32 2.5.1 The Business-to-Business & Business-to-Government market ................................. 32 2.5.2 The Business-to-Consumer market ............................................................................ 38

2.6 Market Trends ........................................................................................................................... 39 2.6.1 Increasing financial pressure as a main accelerator for E-Invoicing ......................... 39 2.6.2 Large organisations demanding value added services ............................................... 40 2.6.3 Public sector becomes E-Invoicing user .................................................................... 40 2.6.4 Mass market users demanding new features and models ........................................... 41 2.6.5 More innovative rollout models ................................................................................. 41 2.6.6 Service provider offerings and shift of focus ............................................................. 42

2.7 Supporting initiatives ................................................................................................................ 42 2.7.1 Standards .................................................................................................................... 42 2.7.2 Electronic invoicing on the EU agenda ...................................................................... 44

3. Key stakeholders as game changers ................................................................................................. 46 3.1 Public Sector.............................................................................................................................. 46 3.2 SMEs ......................................................................................................................................... 46 3.3 Solution providers ..................................................................................................................... 46

4. E-Invoicing / E-Billing as catalyst for AR/AP automation ............................................................ 47 4.1 Finance departments facing new challenges ............................................................................. 47 4.2 Capability of AR/AP automation and E-Invoicing to exploit the full potential ........................ 50

5. Business Case for Issuer/Recipient .................................................................................................. 52 5.1 Saving potential ......................................................................................................................... 52


E-Invoicing / E-Billing 2014

5.2 Know your volume .................................................................................................................... 53 5.3 Know your current and future costs .......................................................................................... 54

5.3.1 Current costs for outbound invoices .......................................................................... 54 5.3.2 Current cost for inbound invoices .............................................................................. 55 5.3.3 Cost differences among continents and countries ...................................................... 55 5.3.4 Future costs with automated processes ...................................................................... 55

5.4 Business Case ............................................................................................................................ 56 5.4.1 Small businesses ........................................................................................................ 56 5.4.2 Mid-sized and large businesses .................................................................................. 56 5.4.3 Financial benefits for the public sector ...................................................................... 57

6. How to overcome barriers and to be successful with your project ............................................... 60 6.1 Barriers and how to overcome them .......................................................................................... 60 6.2 Success factors .......................................................................................................................... 61 6.3 Define the best Scope for your organisation ............................................................................. 62 6.4 Know your environment ............................................................................................................ 63 6.5 Scenario for internal implementation ........................................................................................ 64 6.6 Know the capabilities & constraints of your trading partner ..................................................... 64 6.7 Compliant rollout model for your counterparts ......................................................................... 66 6.8 Solution scenarios...................................................................................................................... 66 6.9 Roadmap .................................................................................................................................... 67 6.10 Project Checklist........................................................................................................................ 68

7. E-Invoicing opportunities in a challenging market environment ................................................. 70 7.1 Overview ................................................................................................................................... 70 7.2 Reduce costs .............................................................................................................................. 70

7.2.1 Increase electronic proportion .................................................................................... 71 7.2.2 Enhance the degree of process optimization .............................................................. 73

7.3 Increase elasticity of costs ......................................................................................................... 73 7.3.1 Inhouse developments vs. 3rd party solutions ............................................................ 73 7.3.2 Shift fixed costs towards variable costs ..................................................................... 74

7.4 Improve Working Capital .......................................................................................................... 74 7.4.1 Challenges and todays options for organizations ..................................................... 74 7.4.2 Improving company internal processes ...................................................................... 75 7.4.3 Trade Finance / Supply Chain Finance (SCF) ........................................................... 75 7.4.4 Dynamic discounting ................................................................................................. 76

7.5 Collaboration model for Trade Finance Services and E-Invoicing operators ........................... 76 7.6 The E-Invoicing Opportunity .................................................................................................... 78

8. Esker ................................................................................................................................................... 79

9. Appendix A: Law and regulations ................................................................................................... 87 9.1 Legal acceptance of electronic invoices .................................................................................... 87 9.2 Types of legal requirements; a rapidly changing picture .......................................................... 87 9.3 Electronic invoice issuance/processing and archiving by third parties ..................................... 90 9.4 Procedure/Process description ................................................................................................... 90 9.5 Objectives and status of legal changes in the European Union ................................................. 91 9.6 Which method is appropriate for organisations in the European Union? .................................. 92

10. Appendix B: Glossary, Sources ........................................................................................................ 93 10.1 Glossary ..................................................................................................................................... 93 10.2 Sources ...................................................................................................................................... 94


E-Invoicing / E-Billing 2014 Table of Figures Figure 1: Guess for global bill/invoice volume ............................................................................. 12 Figure 2: Invoice/Bill volume breakdown by industry (issuer view) ............................................ 13 Figure 3: Invoice volume breakdown by industry (recipient view) .............................................. 13 Figure 4: Overview about main market models ............................................................................ 15 Figure 5: Supplier Direct Model ................................................................................................... 16 Figure 6: Advantages & disadvantages of Supplier Direct Model via customer portal ................ 16 Figure 7: Advantages & disadvantages of Supplier Direct Model via push method .................... 17 Figure 8: Buyer Direct Model ....................................................................................................... 17 Figure 9: Advantages and disadvantages of Buyer Direct Model ................................................. 18 Figure 10: Advantages and disadvantages of Direct Model as a Service ..................................... 18 Figure 11: Network Model ............................................................................................................ 19 Figure 12: Advantages and disadvantages of Network Model ..................................................... 20 Figure 13: Total Invoice Management .......................................................................................... 21 Figure 14: Advantages and disadvantages of Total Invoice Management .................................... 21 Figure 15: Classical evolution pattern in most countries .............................................................. 22 Figure 16: Market maturity for electronic invoices/bills .............................................................. 23 Figure 17: Optimisation focus of geographical regions ................................................................ 24 Figure 18: Adoption of E-Invoicing Solutions in US companies [5] ............................................ 29 Figure 19: European market penetration in the B2B/B2G/G2B segment ..................................... 32 Figure 20: B2B/B2G/G2B: Estimated market penetration 2014 per country ............................... 32 Figure 21: Portion of European E-Invoicing users ........................................................................ 33 Figure 22: Portion of E-Invoices received within European companies ....................................... 34 Figure 23: Proportion of various invoice formats ......................................................................... 35 Figure 24: Invoices received by European enterprises according to delivery channels ................ 36 Figure 25: Government evolution from pure regulator up to an active user ................................. 37 Figure 26: European market penetration in the B2C segment ...................................................... 38 Figure 27: B2C: Estimated market penetration 2014 per country ................................................ 38 Figure 28: Electronic bill volume B2C, direct and via Service Provider ...................................... 39 Figure 29: Global and industry independent standards for invoices ............................................. 43 Figure 30: Challenges and possible actions to improve the AR & AP department ...................... 47 Figure 31: AR specific challenges and possible actions for improvement ................................... 48 Figure 32: AP specific challenges and possible actions for improvement .................................... 49 Figure 33: Capability to cope with joint AR/AP challenges ......................................................... 50 Figure 34: Capability to cope with specific AR challenges .......................................................... 50 Figure 35: Capability to cope with specific AP challenges .......................................................... 51 Figure 36: Saving potential for invoice/bill issuers (actual customer case) .................................. 52 Figure 37: Saving potential for invoice recipients (actual customer case) ................................... 53 Figure 38: Key-metrics for number of invoices ............................................................................ 53 Figure 39: Items to be considered in a business case .................................................................... 56 Figure 40: Breakdown of saving potential in the public sector ..................................................... 57 Figure 41: Indication for the saving potential in the public sector of some European countries .. 57 Figure 42: Saving potential for cities ............................................................................................ 59 Figure 43: Main barriers in many European countries [17] .......................................................... 60 Figure 44: Main barriers for mid-sized and larger US companies [5] .......................................... 61 Figure 45: Priorities of invoice streams ........................................................................................ 63 Figure 46: Optimisation steps and benefits ................................................................................... 64 Figure 47: Pattern for inbound invoices ........................................................................................ 65 Figure 48: Requirements of organisations .................................................................................... 65 Figure 49: Different rollout models in use .................................................................................... 66 Figure 50: Success rate for an organisation and the electronic proportion one year after launch 66


E-Invoicing / E-Billing 2014 Figure 51: Third-party services and applications .......................................................................... 67 Figure 52: Indication for project and implementation time .......................................................... 68 Figure 53: Optimise corporate finances with E-Invoicing ............................................................ 70 Figure 54: Migration path to exploit the full optimization potential ............................................. 71 Figure 55: Success rate dependant on practiced on-boarding methods ........................................ 71 Figure 56: Exploit the full optimization potential ......................................................................... 73 Figure 57: Complementary collaboration model .......................................................................... 77 Figure 58: summary of regulatory requirements across selected regions and countries ............... 88 Figure 59: Glossary ....................................................................................................................... 93 Figure 60: Key sources used in this report .................................................................................... 94


Foreword

Ensuring e-invoice compliance By Emmanuel Olivier, Esker Worldwide Chief Operating Officer Switching from paper to electronic invoicing can dramatically improve a businesss accounts re-ceivable (AR) process; however, there are strict international e-invoicing tax compliance rules that cannot be overlooked. As more and more companies replace their costly paper-based invoice processes with less expen-sive and more efficient electronic invoicing delivery and archiving solutions, they are discovering new, more effective ways to help increase their competitive advantage and business efficiency. While e-invoicing is beginning to realise its potential, one of the reasons it has not been widely adopted so far is the confusion around compliance. E-invoicing on the rise There is an increasing momentum for companies to update their business-to-business communi-cations and send and receive invoices electronically. Two primary factors are contributing to the steady growth of e-invoicing:

1. Many governments and large corporations are adopting e-invoicing, some even mandating it.

2. The European legislative framework has become more flexible, making the requirements for proof of e-invoice validity the same as those for paper invoices.

Rules are rules Most countries have specific requirements for processing and storing invoices so that tax authori-ties can easily determine, even many years later, if they are the same invoices as issued, by an identifiable source, at the time of the transaction. In the event of a tax audit, a company must validate the integrity and authenticity of an invoice, from both the vendor and the buyer, (i.e., prove it is real and unchanged). These qualities must be verifiable from the moment an e-invoice is issued until the end of the mandatory archiving period. All documents requested by an auditor must be made available as quickly as possible, and have to be intelligible to the tax administration. Non-compliance with tax requirements can result in significant fines for a company. How to prove e-invoicing legality Previously, electronic signatures and electronic data interchange (EDI) were the only accepted methods for ensuring e-invoice authenticity and integrity. Today, under the European Directive 2010/45, a company has more flexibility to prove the legality of an e-invoice, thanks to a newly introduced method business controls-based reliable audit trail (BCAT) between an invoice and a supplier. This audit trail, already permitted for paper invoices, gives a step-by-step documented history of a transaction and is now accepted as evidence for proving the validity of an e-invoice. With a variety of process approaches to ensure e-invoice legitimacy, companies need a trusted partner to help them navigate the complex universe of e-invoicing.

E-signatures provide an unprecedented level of legal certainty, reliability and cost effec-tiveness

EDI requires reliable data formatting and secured exchange BCAT obliges companies to show transaction proof with business records generated during

the invoicing process (e.g., archived sales/purchase order, goods receipt/dispatch notes) In this evolving context, from a legal, process and technical point of view, businesses can rely on the expertise of Esker.

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Foreword

Esker fits the bill Eskers ability to ensure compliance when obtaining e-signatures for specific countries played a crucial role in a leading media companys AR vendor decision. Based on a three-year analysis, the company has estimated that Esker will help them:

Achieve a 20% increase in customer e-invoicing adoption rate per year Improve DSO by five days Grow revenue by 7% Save $1 million in costs

All roads lead to Esker Whichever method a company may choose, Esker can support them. Through its partnership with TrustWeaver, a leading expert on e-invoicing compliance issues, Esker applies appropriate e-sig-natures, time-stamps and verifications to ensure regulatory compliance in over 40 countries. For those who choose to demonstrate the validity of an invoice through BCAT, the Esker audit trail and reporting capabilities make this possible. Esker keeps track of all customer orders, from receipt and posting to dispatch and electronic archiving, making it easy to retrieve orders for audit pur-poses. And for those with partners requiring EDI, Esker can help as well. Esker automates it all Using one integrated and cloud-based platform, companies can leverage Esker to automate any or all business document processes. Whether a business wants to automate and capture inbound doc-uments (e.g., sales orders, vendor invoices) or electronically deliver outbound documents (e.g., customer invoices, purchase orders), its all controlled by a single set of business rules for end-to-end automation. To learn more about Esker solutions and other customer success stories, or even play our new e-invoicing game, please go to page 79.

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E-Invoicing / E-Billing 2014 0. Executive Summary

Electronic and automated invoice processes can result in savings of 60-80% compared to tradi-tional paper-based processing. Projects typically result in a payback period of 0.5-1.5 years. This report will give the reader useful information for achieving these results.

It has primarily been private sector businesses and numerous solution providers which have de-veloped the market in recent years. They were partially supported by public sector initiatives in Latin America and in a handful of countries in Europe and Asia. The growth rates for electronic exchange and archiving of bills/invoices are impressive, but the potential is still tremendous.

Recipient segment

Annual bill & invoice volume estimated to

be at least

Estimated electronic proportion of total vol-

ume in 2014

Estimated annual vol-ume increase in elec-tronic bills/invoices

World Europe World Europe World Europe

Consumer 330 billion 18 billion exceeding

8%

14% 20%

15%

Business & Government 170 billion 17 billion 24% 22%

Of the 500 billion bills/invoices globally, 40 billion are estimated to be exchanged in 2014 pa-perless (14 billion consumer bills and 26 billion invoices in the business and government seg-ment). Latin America contributes around 25 billion to this electronic volume, Northern America 7, and Europe 6 billion. With at least 10% of the total market invoice volume (paper and electronic), the public sector belongs to the top 3 industries. Measured by the number of trading parties, it is the clear leader: 45-65% of all companies in a country are suppliers to the public sector and send invoices to it. 100% of enterprises and households receive invoices/bills from the public sector. That is why E-Invoicing initiatives by the public sector are key for the development of the whole coun-try. Unfortunately, this sector often belongs to the laggards, despite the huge saving potential. This is due to change completely in the coming years: The public sector in most European and some Asian countries is expected to become one of the key drivers for the E-Invoicing market. Not only will it become a key driver, but it is also expected to be game changer number one. Mainly due to the projects of large customers and the public sector, millions of SMEs have to replace paper invoices with electronic ones. On one side, they have to follow the requirements of their customers, but, in addition, demand completely new and easy to use solutions. SMEs are demanding very smart solutions, but do not want to pay (much) for it. Due to the high number and the very specific requirements, they can be seen as game changer number two. Solution providers were the market-makers for the last decade and many of them are expected to be game changer number three in the coming years. A huge innovative step regarding the enrolment process and added values is ahead of them.

B. Koch, Billentis Page 9

E-Invoicing / E-Billing 2014 1. Introduction

1.1 The purpose of the Report E-Invoicing / E-Billing is a rapidly expanding technology. Whereas Latin American and many European countries are already considerably advanced in this field, a vast majority of organisa-tions have not yet decided upon one system or service. A high number of providers offer solutions and services for this matter. In this phase, it is im-portant to have up-to-date information and guidance on selecting the right solution and provider. An independent international E-Invoicing consultant and market analyst has written this report. Its purpose is to support invoice issuers and recipients wishing to replace expensive paper-based invoice management. It gives all the relevant information for succeeding with an E-Invoicing project. The report not only provides facts, but also qualitative views, evaluation and details about the products offered by many providers.

1.2 Methodology The author has worked in the E-Invoicing business since 1997. During the first two years in Switzerland, he established one of the first E-Billing/E-Invoicing services in Europe. Since 1999, he has acted as an independent consultant and has made business plans, RFPs, system evalua-tions and many technical and marketing concepts for large invoice issuers and recipients, banks, integrators, solution and service providers. During this time, he has constantly collected im-portant data about the relevant markets. The results are repeatedly published in newsletters and market reports. The report is based on Publicly available information; the author gathered information from thousands of sources

over the years and adjusted them Market research carried out by third parties (representing 15,000+ enterprises and 10,000+

consumers) Verification of important figures by customer/provider visits and/or calls Own in-depth experience from more than 160 customer consulting projects in 50+ countries Consolidation of the above information

1.3 Terms and definitions The term E-Invoicing is used for the Business-to-Business (B2B) and Business-to-Government (B2G/G2B) segment. The EU legislation considers a relatively broad definition: The issuing and receipt of VAT compliant invoices in an electronic format. Most national legislation mandates users to archive the E-Invoices in its original (electronic) format, even if it were printed after re-ceipt. This definition in Europe corresponds with the broad recognition by users and also in-cludes image-based digital invoices (mainly PDFs). Definitions in other regions of the world differ greatly. Although it is not valid in any case, it seems that E-Invoicing in the US means much more just automated E-Invoicing. Other in-creasingly popular terms in this narrower sense are Touchless E-Invoicing or Zero touch E-Invoicing. In this report, E-Billing covers the electronic bills from Business-to-Consumers (B2C). Note: Some market participants use this term alternatively for the process on the issuer side in general, regardless of whether the customer is an enterprise or household.


E-Invoicing / E-Billing 2014 All statistics and forecasts are based on a very strict definition of E-Invoicing: Transported and archived fully electronically from end to end and in a tax compliant manner. Not considered are invoices which are transferred electronically, but violate legislation for some reason and all semi-electronic invoices (printed E-Invoices, scanned paper invoices, etc.). Also not consid-ered are the reporting and validation invoice data sent from businesses to the tax authorities (popular in Latin America, Asia and some European countries).


E-Invoicing / E-Billing 2014 2. The market

2.1 Market volume

2.1.1 An estimate for the global volume

2.1.1.1 Bills/Invoices Whereas the volume (paper + electronic) in Europe is relatively well known, figures for other continents may just be guessed. There are clear indications that the number of bills/invoices per entity (enterprise or household) in Asia and America (North and South) is higher than in Europe. This seems to be especially the case for recurring bills (telco, utility and other bills).

Figure 1: Guess for global bill/invoice volume

Segment Estimated volume to be at least B2C/G2C 330 billion

B2B/B2G/G2B 170 billion

Total 500 billion Source: Billentis In most industrialised countries, invoices/bills represent 16-30% of the total (addressed) letter volume and up to 50% in less industrialised countries. Local organisations in an increasing num-ber of countries meanwhile have their own mechanisms to make qualified guesses about their in-voice volume. Several service providers processing invoices (paper and electronic) confirmed to the author that economic cycles do not have a noticeable impact on the invoice volume. There are several indications that the bill/invoice volume increases 2-3% every year. This is for several reasons: Increase of the population, the number of households and enterprises Suppliers improve their working capital and are no longer willing to give credit to their cli-

ents due to low billing/invoicing frequency; by sending bills/invoices every two months in-stead, they do it after each delivery

Legal reasons; some countries (especially within the European Union) are mandating suppli-ers to send bills/invoices within 15-30 days of their performance or goods delivered

Electronic invoices are cheaper and allow suppliers to send invoices more frequently

2.1.1.2 Invoice-like documents and messages Additional volume of invoice-like documents and messages can also be tremendous (depend-ing on country likely 5 to 15 times over the invoice volume). Invoices are different from re-ceipts (payslips). Both invoices and receipts are ways of tracking purchases of goods and ser-vices. In general, the content of the invoices can be similar to that of receipts including tracking the amount of the sale, calculating sales tax owed and calculating any discounts applied to the purchase. Invoices differ from receipts in that invoices serve to notify customers of payments owed, whereas receipts serve as proof of completed payment. The message content can be quite similar to bills/invoices and, for that reason, some press releases translated from any language to English also use the term Bills/Invoices for this kind of document/message. The author keeps that number outside of its statistics. Classical examples of these invoice-like documents and messages are Invoice data sent to the tax authorities just for validation or audit reasons


E-Invoicing / E-Billing 2014 Digital replacements of fiscal printers producing payment receipts. Electronic (payment)

receipts, generated by tills at the Points of Sale (shops, restaurants, ticket counters) and sent to the tax authorities just for validation or audit reasons (e.g. in Taiwan and some Latin American countries); more accurate translations to English use the terms electronic tax re-ceipts or uniform invoices for these messages.

2.1.2 The European bill/invoice volume

Due to the annual increase, the European volume may have meanwhile passed the 34 billion and could increase to 35 billions in 2015. Approximately half of the volume is send to consumers (B2C), the other half to enterprises and the public sector (B2B/B2G/G2B).

Figure 2: Invoice/Bill volume breakdown by industry (issuer view)

Legend: 1% of all Telecom invoices in a country are sent to corporations and 9% to consumers. Telecom invoices represent typically 10% of the total market volume. There are just few segments receiving a very high invoice volume. The industries with the high-est inbound volumes are:

Figure 3: Invoice volume breakdown by industry (recipient view)

Industries with high inbound volume % of all B2B invoices, indication Healthcare 5-13%, depending on the country Retail 10% Public sector: National Government, regions & municipalities

9-15%

Buyer Clubs, Trade 5% Source: Billentis

Government 7%

Utility 2%

Media 3%

Insurance 5%

Credit Cards 3%

Telecom 9%

Others 24%Government 2%Media 3%

Healthcare 7%

Insurance 2%

Logistics 6%

Credit Cards 1%Telecom 1%

Retail 6%Utility 2% Others 17%

to Consumers

to Corporates

Source: Billentis


E-Invoicing / E-Billing 2014 All the industries above, except the public sector, were early adopters of EDIFACT or other elec-tronic invoicing channels. The remaining volume of 60%+ is spread out across the other indus-tries.

2.1.3 Relevance of cross-border traffic

Only a relatively small fraction (1-5%) of all invoices is sent and paid abroad. The larger coun-tries in particular are much more focused on the domestic markets. In Germany, there are 7 bil-lion domestic payment fund transfers compared with just 16 million cross-border transactions to EU countries (

E-Invoicing / E-Billing 2014 placed by electronic invoices, it is essential to stay VAT compliant. Even if very large organisa-tions prefer to exchange electronic invoices directly with their counterparts, the vast majority of companies are advised to use a professional third party service operated by professionals. We distinguish between several E-Invoicing models: Supplier Direct Model (in-house) Buyer Direct Model (in-house) Outsourced Direct Model: Software as a Service (SaaS) Network Model, 3rd party operator Service Hybrid Model Total Invoice Management (in-house or outsourced)

Figure 4: Overview about main market models

2.3.2 Supplier Direct Model

A supplier implements an E-Billing/E-Invoicing solution within his environment for distributing the electronic invoices via different channels: Sends them to the customers via email, SMS etc. Provides the E-Invoices on his customer portal; Customers can login, view and download

them The supplier direct model is quite popular in telecom, utility and card companies issuing a high volume of bills to consumers and businesses. Small businesses do not only accept PDF invoices attached to e-mails from larger issuers, but also increasingly exchange E-Invoices directly with their trading partners. Due to their size, they do not have the capability to provide E-Invoices on their own portals, but instead exchange them as PDF invoices attached to e-mails.

Supplier Direct1 : Any Supplier

Buyer

Buyer

Buyer DirectAny : 1

SupplierBuyer

Supplier

NetworkAny : 1 : Any

E-Invoicing / E-Billingnetwork

Supplier

Supplier

Buyer

Buyer

Sender Recipient


E-Invoicing / E-Billing 2014 Figure 5: Supplier Direct Model

The classic market launch is done with a B2C Customer Portal. Customers can login, view, ana-lyse and download the electronic invoices. Due to the login process on each suppliers site, this route is not always popular. Therefore, customers should at least receive an email notification regarding a new invoice, including a hyperlink to the portal. Much more popular is to push the bills/invoices to the clients as email attachments. To improve market acceptance, issuers to B2B customers should provide The most common structured invoice data for download (attachement or integrated to PDF

invoice) Long-term and VAT compliant online archive for the customers invoices (as smaller cus-

tomers quite often do not have the required environment for doing this) In case of signatures: Verification tool for customers, reporting the result in a log file (must

also be archived)

Figure 6: Advantages & disadvantages of Supplier Direct Model via customer portal

Advantages Disadvantages + Direct contact with customers, chance for

cross-selling and interaction + E-Invoicing functionality directly influ-

enced by supplier; e.g. a telecoms opera-tor offers analysis tools with CDRs (Call Detail Records)

+ Chance for very close integration with back office environment and automation of processes

First part of solution development and maintenance seems not to be too expen-sive, but this changes dramatically over the years (upgrades; accumulation of maintenance costs)

Customers dislike logging on to various websites of different suppliers or making multiple integration projects

Customers only get a limited number of formats to download and have to convert them for import into their back office sys-tems

SME customers dont get a centralised, ef-ficient and VAT compliant E-Archive for E-Invoices of all their suppliers

Overall, customer acceptance will be lim-ited

Buyer 4

Buyer 1

Buyer 2

Buyer 3

Supplier

B2C Customer Portal

Build VATcompliantData Set

Customer archive (recommended)

Web Presentment& PDF-Download

eMail + PDF(opt. EDI)

Web PresentmentPDF + EDI Download

Paper

ERP

ARB2B Customer Portal

PDF/XML Mailer

Source: Billentis


E-Invoicing / E-Billing 2014 Many disadvantages can be reduced/eliminated if this model is operated by a third party (SaaS, Software as a Service) or if it is practised as a complement to a network model see Hybrid Model. In most market sectors, the customer adoption by using customer portals is lower than expected, except where the rollout strategy Opt-Out including the email channel can be practised. Expla-nation of the term Opt-Out see figure 49. An alternative builds the push method based on intelligent PDF invoices including XML data.

Figure 7: Advantages & disadvantages of Supplier Direct Model via push method

Advantages Disadvantages

+ Direct contact with customers, chance for cross-selling and interaction

+ Efficient solutions for senders and recipi-ents available; low upfront investment

+ Chance for integration with back office environment and automation of processes on issuer and recipient side

+ Acceptance by customers of any size

Customers only get a limited number of formats to download and have to convert them for import into their back office sys-tems

SME customers do not get a centralised, efficient and VAT compliant E-Archive for E-Invoices of all their suppliers

2.3.3 Buyer Direct Model

A buyer implements an E-Invoicing and/or Invoice Management solution within his environment for receiving the electronic invoices via different channels: Gets invoices directly as a data stream for importing them into his AP solution (preferred

mainly for invoices of large suppliers) Smaller suppliers key-in the invoice data in a web-template on the corporate invoice portal of

the buyer (webEDI); data can be automatically processed and imported into the AP system

Figure 8: Buyer Direct Model

This model is preferred by larger organisations, especially if their suppliers are in strong compe-tition with others (e.g. retail, automotive, trade).

Buyer

Supplier archive (recommended)

Data Validation

Mapping

Validate / ensure VAT compliance

WorkflowSupplier Portal

eMail ClientSupplier 1 EDI, XML,CSV

Supplier 2 WebEDI

Supplier 4 PrinterDriver

Supplier 5 Paper orImage based PDF

Message Gateway

ERP

AP

OCR

Source: Billentis

Supplier 3 XML enrichedPDF


E-Invoicing / E-Billing 2014 Some providers offer E-Invoicing and Invoice Management solutions just for buyers, whereas others cover both sides: software for suppliers, already preparing and sending a compatible in-voice format perfectly matching the requirements of buyers. If suppliers are located in countries requiring digital signatures, they have to sign the E-Invoices in a VAT compliant manner. To succeed with smaller suppliers, it is of key importance to offer them good tools for this process and most probably a long-term supplier archive too. The model can also be quite successful with smaller suppliers if orders are sent to them in elec-tronic form alone (e.g. via Extranet Portal). Many solution providers offer a functionality to con-vert these purchase order data easily into an invoice for sending back to the buyer.

Figure 9: Advantages and disadvantages of Buyer Direct Model


+ Direct contact with suppliers, chance for interaction

+ E-Invoicing functionality directly influ-enced by recipient

+ Chance for a very close integration into back office environment and automation of processes

First part of solution implementation and maintenance seems not to be too expen-sive, but this changes if mid-sized and smaller suppliers must also send elec-tronic invoices; much legal clarification is necessary, especially in cases of cross-border exchange

Suppliers dislike converting their elec-tronic invoices into the various formats re-quested by the buyers; they also dislike making multiple integration projects (with each buyer)

SME suppliers dont get a centralised, ef-ficient and VAT compliant E-Archive for E-Invoices for all invoices sent to various customers

Overall, supplier acceptance will be lim-ited but some pressure on suppliers is helping

2.3.4 Direct Model as a Service

Over the years, large organisations using biller or buyer direct models concluded that the market-ing rollout is harder than expected and that the maintenance of their applications is ultimately too expensive. That is why some service providers in the UK, the Netherlands, Finland, France, Ger-many and other countries started to offer white-label services for them (SaaS, Software as a Ser-vice). They run a direct model on behalf of large issuers and recipients of invoices. The software is typically developed, maintained and operated by these providers. Customers pay just a fixed integration fee and a volume/time based fee.

Figure 10: Advantages and disadvantages of Direct Model as a Service

Advantages Disadvantages + Direct contact with counterparts, chance

for interaction Counterparts dislike logging on to various

websites or making multiple integration projects


E-Invoicing / E-Billing 2014 Advantages Disadvantages

+ E-Invoicing functionality directly influ-enced

+ Chance for very close integration into back office environment and automation of processes

+ Lower costs, as application development and maintenance is shared with others

+ No negative surprise with the costs, as provider offers a fixed integration fee and a price per transaction or user

+ Complexity regarding VAT compliant processing (and optional archiving) can be outsourced

Counterparties only send/receive a limited number of formats

Overall, acceptance by counterparts will be limited

2.3.5 Network Model

Issuer and recipient have just one interface to their service provider, the network operator1. This E-Invoicing network operator manages the VAT compliant invoice transfer to clients. Issuers can deliver invoice data (e.g. ERP output format like idocs, any XML data or a flat file) to the opera-tor who translates it into the target format of the recipient. The operator guarantees the main le-gal requirements, authenticity and the end-to-end data integrity. An increasing number of opera-tors offer additional services such as tax compliant long-term archiving.

Figure 11: Network Model

Large issuers and recipients intend to make a full integration into their AR and AP applications. SMEs often prefer easier and quicker solutions, either by using WebEDI or Printer Drivers. For both channels, suppliers AR systems do not need any modification or upgrade. Use of E-Invoic-ing is possible for them within hours after making their decision.

1 In some countries, the terms consolidator, service provider or supplier network are more common

Supplier 1

Supplier 2

Supplier 3

Buyer 1

Buyer 2

Buyer 3

Network operator

ProcessingData Formatting

Build VAT compliantData Set

Archive

EDI, XML,CSV

WebEDI

PrinterDriver

EDI, XML,CSV

EDI+ PDF

Web HTMLPresentment

Source: Billentis


E-Invoicing / E-Billing 2014 Figure 12: Advantages and disadvantages of Network Model


+ Easy and efficient integration to a single point of contact

+ Lower costs as application development and maintenance is shared with thousands of other participants

+ No negative surprise with the costs, as provider offers a fixed integration fee and a price per transaction or per user

+ Complexity regarding VAT compliant processing (and optional archiving) can be outsourced

+ Easy to use: Technical and legal require-ments can be outsourced to network oper-ators

+ Counterparts like logging on to just one website, making one integration project with just one invoice format

Indirect contact with counterparts, chance for interaction possible, but limited com-pared to direct or SaaS model

E-Invoicing functionality is fixed and cant be influenced

2.3.6 Hybrid Model

Message transfer with a few high-volume and strategic important counterparts is based on a di-rect model, whereas mid-sized and small counterparts are addressed via network operators. Organisations using this model have combined the advantages and disadvantages of direct & net-work models. Advantage: Good solution for all organisations already practising a direct model with chance for an efficient route to all smaller suppliers and customers.

2.3.7 Total Invoice Management

Even at best, there will always be a remaining percentage of paper invoices in tandem with the increasing electronic volume. At worst, this can result in two different workflow and archiving processes. This can be avoided in most cases with innovative solutions for supporting and han-dling various invoice formats, including paper. If practised as a direct model, such invoice man-agement solutions can be purchased on the market and implemented into the companys own en-vironment. Organisations not yet using scanning solutions quite often prefer using the complete service of a third party. Ultimately, this means that issuer and recipient can exchange invoices 100% electronically.


E-Invoicing / E-Billing 2014 Figure 13: Total Invoice Management

Figure 14: Advantages and disadvantages of Total Invoice Management

Advantages Disadvantages + 100% solution + Harmonised processes, independent of in-

voice medium used

Pressure to move very quickly from paper to electronic channel is limited; as a re-sult, paper can survive longer than desired

Supplier 5 Buyer 5

Buyer 1

Buyer 2

Buyer 3

Network operator

ProcessingData Formatting

Build VAT compliantData Set

Archive

EDI, XML,CSV

EDI+ PDF

Web HTMLPresentment

PaperPDF (Image)

PaperPDF (Image)Paper/el. Image Data

Data Paper/PDF

Source: Billentis

Supplier 1 EDI, XML,CSV

Supplier 2 WebEDI

Supplier 4 PrinterDriver

Supplier 3 XML enrichedPDF


E-Invoicing / E-Billing 2014 2.4 The global landscape

2.4.1 Market evolution and maturity

Figure 15: Classical evolution pattern in most countries

Phase Description 1 Large organisations (telcos, utility sector, card issuers, etc.) have tremendous ex-

penditures for printing and mailing bills. Due to their competitive industry, they are pushed to reduce their costs significantly. They offer the bills electronically to their clients, often on their portals for download after log-in. The rate of acceptance by cli-ents is limited, except if clients receive incentives for changing to E-Bills, if they are punished with penalties for paper bills or if they are pushed to accept the bills via email. This phase is the first experience with E-Billing for most countries.

2 Relatively soon, users of Supplier Direct services will recognise that their clients will not wish to log-in to each suppliers website. They prefer a single point of contact (aggregating website, online banking) for bills of all their suppliers. The acceptance of a B2C network service can be higher than with the Biller Direct model (Web-based) and the on-boarding costs per user are shared with other billers. Many billers recognize in this second phase that Bill Presentment on their own portal is not sufficient. They enhance their scope by using in addition a network service or switch to a push-model (send bills as PDF email attachments).

3 Enterprises can benefit most with electronic and automated processes in their role as issuer as well as recipient. As soon as legislation permits paperless invoicing (in most countries, except some in Africa and Asia), large organisations are typically the innovators for E-Invoicing. They push their large trading partners, followed by mid-

1. B2C Supplier Direct

2. B2C Networks

3. B2B Large Corporates

0 Year 10

4. Mass market adoption

Evol

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n ph

ase



Phase Description sized and small ones. Due to the high benefits for issuers and recipients, E-Invoicing in the B2B and B2G segment is typically more successful than in the B2C. However, it is still a challenge for large organisations to push a high number of mid-sized and small trading partners to exchange invoices electronically.

4 The public sector is in an excellent position to initiate the breakthrough in the mass market. In many countries, 45 to 65 percent of local enterprises are suppliers to the public sector. The government has the power to push these suppliers to send invoices electronically. They are also in the position to modify the legislation in a user-friendly way if necessary. Even in countries where the public sector is inactive regarding E-Invoicing, the mar-ket does move forward rapidly. An increasing number of providers meanwhile offer a broad range of solutions for all types of users and for fair conditions.

The maturity of the market varies between continents and the countries on each continent.

Figure 16: Market maturity for electronic invoices/bills

The term Laggards in the chart above does not mean that there was no E-Invoicing activity in these countries. It just expresses that they are typically in evolution step 1 or 2. Developing means that countries are typically in evolution phase 3. Either they are preparing their legislation for B2B E-Invoicing as well or, if already in place, the E-Invoicing volume is still very low. It is expected that the 2014 volume for E-Bills/E-Invoices will achieve around 40 billion world-wide with annual growth rates of at least 20%.


E-Invoicing / E-Billing 2014 Not considered above: Invoice data which are just copies in parallel to the paper-based original (e.g. EDI messages

complemented with collective paper invoices or invoice data as result of paper scanning and OCR process)

Invoice-like electronic messages as defined in chapter 2.1.1.2

2.4.2 Current optimisation focus of geographical regions

There are many similarities as to how invoices are used in our world. The challenge to imple-ment E-Invoicing and to convince trading parties is also comparable. However, there are also major differences due to heterogeneous legislation, languages, cultures and the current optimisa-tion focus. Although not applicable for all countries and organisations, the author concluded that the optimisation focus seems to be as follows:

Figure 17: Optimisation focus of geographical regions

Focus Description

1 Asia & Latin America (and increasingly some Southern and Eastern European coun-tries): Country-wide projects are launched by the tax authorities with the aim of re-ducing tax evasion. Suppliers and buyers have to send either invoice data or at least reports in electronic format to the tax authorities for real-time validation & auditing. The system for the trading parties is quite complex. As a benefit, suppliers and buyers have electronic invoices, but just because the government is demanding or mandating it. The company internal process efficiency is not yet necessarily optimised.

2 North America: Larger and mid-sized companies optimise mainly their internal pro-cesses. AR and AP automation as well as Trade Finance and Working Capital Man-agement are a focus.

3 Major parts of Europe: Suppliers and buyers can be located in various countries with different legislation. Much effort was done in EU member states to remove legal barriers. For Europeans, it is also important to build a framework, which is suitable

Supplier Buyer

Tax Authorities

1

32 2


E-Invoicing / E-Billing 2014 Focus Description

for millions of companies of any size and from different countries. Hundreds of E-In-voicing network operators offer their services, many of them interconnected with other providers. Suppliers and buyers may in most countries use E-Invoicing still on a voluntary base. Although the market is still quite fragmented, the approach in Europe can be described as relatively holistic with a strong intention to collaborate among all stakeholders.

In the long-run, all suppliers, buyers and the tax authorities want benefits with E-Invoicing. This increases the chance that each continent learns from each other and adopts best-of-breed compo-nents from others.

2.4.3 The Service Provider landscape

Organisations offering exchange & transaction services are founded either as start-ups or often originate as Print shops (invoice printing as third party service) AR and collection service Post EDI Clearing centres Archiving service Scanning service Electronic marketplace, procurement platform Banks or financial clearing services Payment service providers ERP integrators E-Business operators Software houses Consultants Digital signature service provider Some very large operators have their roots and headquarters in Latin America (especially in Chile). The early market evolution, combined with the quite demanding legal requirements have obviously built an ideal environment to succeed with the service approach. Soon, the pioneers expanded into neighbouring countries. The language was the same and the practice model was quite similar, or at least inspired by the Chilean approach. In North America, network operators have mainly been established in the B2C segment and of-ten in form of payment networks with support for bill presentment. Compared to the size of the market, there are still few players covering the B2B segment. However, this is expected to sig-nificantly change during the coming years.

2.4.3.1 Service providers in Europe In early 2014, about 600 network operators were active in the European market. No single player has reached a dominant position in the E-Billing/E-Invoicing market. Most of them have an ex-tensive and balanced product range for issuers and recipients of any size. Others are more spe-cialised for either issuers or recipients and for the B2B or B2C sectors. Around 80 of them have an international range (often supporting tax compliance in 30+ countries). An increasing number improve the international scope by linking partner platforms abroad and roaming E-Invoices. Still, many operators are well established as pure players (focussed on E-Invoicing), whereas


E-Invoicing / E-Billing 2014 others have already enhanced the support for further messages and process automation along the supply chain.

2.4.3.2 Inter-operability among different E-Invoicing network operators In the area of mobile phones, we have many operators in a domestic market, which are con-nected to each other in the local market and with most others abroad. For electronic invoicing, we can see a similar market development, but slower, and with much higher heterogeneity regarding legal constraints, invoice contents etc. Although there is not yet a single standard for exchanging E-Invoices across the various networks, more and more operator platforms are linked together for building inter-operable networks with a broad range. Interoperability among operators is also pushed by initiatives from the European Commission and some associations in the private industry. Some leading operators have already established numerous interconnections on a bilateral and proprietary basis. There are also operator associa-tions with the aim of pushing the interoperability with a standardized approach, e.g. EESPA/Eu-ropean E-Invoicing Service Providers Association [1], German E-Invoicing Alliance [1], Open-PEPPOL [2], the SimplerInvoicing [1] initiative etc. The first two already have 50+ members and OpenPEPPOL 100.

2.4.4 Asia & Pacific region

Remark: The author allocates Belarus, Turkey, Russia and Ukraine to Asia and not Europe. Most Asian countries are in evolution phases 1 and 2 (Figure 15): Large bill issuers start with Bill Presentment via their company portals or internet banking. E-Invoicing in B2B is often not yet legally permitted, or only under strict legal conditions that sometimes include explicit approval from tax authorities. This does not rule out that some com-panies already exchange (in parallel to the tax relevant paper invoice) electronic invoice files (commercial invoices) to improve process efficiency. However, there are some countries in phase 3: The leaders are Singapore, Hong Kong, Taiwan and South Korea. Despite their major importance in the world economy, Japan and India are lagging in both legal framework and adoption. The government, shipping and retail industries play a key role in the B2B/B2G segment. Even though countries such as Singapore and Hong Kong have had rather lenient regulatory conditions for electronic invoicing and record keeping for many years now, adoption levels remain low to modest across most of Asia. The government of Kazakhstan announced that the country would migrate on a stage-by-stage switch to E-Invoicing. The national companies had to start the process from July 1st 2012, while all others taxpayers had to support E-Invoicing from January 1st 2013. Australia and NZ are at a similar stage to Asia. Today, we have seen phases 1 & 2 through di-rect and independent development by Australian companies. Australians are embracing the elec-tronic commerce phenomenon and are becoming increasingly more confident in electronic B2B transactions. At this stage, the majority of invoicing is direct via email or presented online for the user to either download or print. Some providers are also convinced that E-Invoicing via digital mailboxes will play an important role in the near future. Australias state government launched an E-Invoicing pilot in 2012. Many other administrations also started electronic procurement (and E-Invoicing) projects. As this is affecting many suppliers, the maturity of the market is in-creasing sharply.


E-Invoicing / E-Billing 2014 The legislation is very moderate. Australian taxation law supports the issuing of electronic in-voices and the requirements regarding storage timeframes for possible audits are much the same as paper. Australia places more responsibility on businesses themselves to confirm the identity and tax status of the entity using free government look-up services, such as the Australian Busi-ness Register [4]. Under Australian law, businesses are required to check this information before finalising the transaction and are required to withhold tax should the other entity not be suitably registered. Penalties can be applied to both parties should these laws be infringed. Azerbaijan has in recent years worked to modernize its legislative and audit framework, and now also allows electronic invoicing. Reducing tax evasion is also a serious challenge in Asia. China is no exception in that regard. To address this challenge, China launched a major fiscal reform project called the Golden Tax Pro-ject (GTP) which mandates the use of specific sophisticated information technologies to im-prove compliance with Chinas VAT laws. In 2013, China introduced further regulations for its online invoice management system in a bid to standardize the industry and curb tax evasion. For using the online electronic invoicing system, taxpayers register at the tax authorities and open an account. To issue an invoice, they fill out the required information and issue the electronic fapiao online. The issued fapiao is verified by matching the information against that in the online system. Compared to pure paper invoices, the taxpayer has the benefit that he has no longer to physically travel back and forth to the tax bureau to obtain and verify invoices. The au-thor would still not describe the Chinese system as E-Invoicing in the sense as practised in Eu-rope, the US or Latin America. Electronic bills to consumers seems to be a step closer to the methods of the western world: The Hong Kong Monetary Authority and banks launched an Electronic Bill Presentment & Payment system. 23 banks, which operate 99% of internet bank-ing accounts, have agreed to take part in the new service, with 18 of them ready to start the ser-vice in December 2013. It permits citizens from Hong Kong to receive and pay bills electroni-cally. India has made announcements about allowing E-Invoicing more broadly; however, electronic invoicing remains rare because Central Sales Tax explicitly requires paper invoices, while only about half of the states allow E-Invoicing under their VAT law. Indonesia is testing a first step towards Electronic Bill Presentment and Payment for tax pay-ments [3]. The current stage of E-Invoicing in Russia may be described as dynamically developing, but still on a low level measured by E-Invoicing volume. The general interest is quite high, but there is a lack of practical knowledge and real positive cases to boost the shift from interest to real action. According to a Federal Tax Information official, by early October 2013, 250,000 Russian busi-nesses expressed in a letter of intent their desire to exchange tax compliant electronic documents (compared to 105,000 in May of the same year). The size of the Turkish market is 2 billion annual invoices/bills (source: Turkish Ministry of Fi-nance). The country made a huge step forward in 2013. Third party service providers (certified and linked to the state-owned service provider) are meanwhile permitted to address the divergent market requirements. They leverage the market reach. In addition, the government declared E-In-voicing to be mandatory for certain industries and their trading parties if they generate a mini-mum turnover with them: Tobacco and Tobacco Products ( Suppliers and Buyers ) Petroleum Oils and Lubricants ( Suppliers and Buyers ) Alcoholic Beverages ( Suppliers and Buyers )


E-Invoicing / E-Billing 2014 Several tens of thousands of Turkish companies were affected by this obligation. In coming years, Vietnam intends to establish a system with strong similarities to the Latin American model. This includes sending the electronic invoices to the tax authorities, where they are approved and get a barcode for delivery issues of the goods.

2.4.5 Africa

Most countries are in evolution phase 1: Large bill issuers start with Bill Presentment via their company portals. Electronic Bill Presentment and Payment is already up and running in Egypt and Tunisia. South Africa is the only country with a robust, albeit still nascent, market for E-Invoicing on the African continent. A regulatory framework for E-Invoicing has existed for many years, and was modernized in 2012. With that exeption, countries such as Morocco in the Maghreb region are slightly more advanced than the rest of Africa, however the mentality in both government and business appear to remain geared towards the use of paper in administrative processes. PDFs transmitted by email could lead the way for several years. Consumer bills are also highly accepted via mobile devices.

2.4.6 North America

In the B2B/B2G segment, the perceptions and objectives differ broadly from the European or Latin American approach. The optimisation of internal operations order-to-cash, AR automa-tion and purchase-to-pay, AP automation is currently a main objective for US enterprises. Various surveys imply that the US is clearly past the early adoption phase of electronic invoicing and that the interest in this topic sharply rises. PayStream Advisors, Inc. a research and consulting firm focused on back office financial appli-cations: The US AP Automation Market revenue is forecast to reach $1.7 billion in 2013, a 11.9 percent increase from 2012 revenue of $1.55 billion. AP Automation Market-based delivery will experience healthy growth through 2016, when worldwide revenue is projected to reach $2.4 bil-lion. The market for E-Invoicing is opening up. Currently at $280 million, PayStream predicts demand is growing at a compound average annual growth rate of 13 percent. But if you look at where we are in the big picture, we are still in about the third inning. Over 80 percent of companies surveyed either have adopted or are evaluating E-Invoicing tech-nology.


E-Invoicing / E-Billing 2014 Figure 18: Adoption of E-Invoicing Solutions in US companies [5]

In small and medium-sized enterprises, 22% or respectively 43% of companies [5] are using an E-Invoicing solution. In relation to the huge size of this market, it may come as a surprise that there are in early 2014 still just around 150 E-Invoicing network operators in place. Because the US does not have VAT, but a sales tax system, invoices are not considered any different from other business docu-ments. It has therefore taken some time for the value of E-Invoicing network operators to be-come recognized on the US market, but now the number of such operators is expected to in-crease sharply in the coming years. Another fact might also prove to be an accelerator for third party service providers: A high number of enterprises are interested in E-Invoicing solutions, but are faced with a limited budget/funding. External services on demand instead of in-house solu-tions help to overcome this barrier as well.

2.4.7 Latin America

Chile may be identified as the root of the Latin American market model and its development. Other markets like Argentina, Brazil, Costa Rica, Guatemala and Mexico belong to the early adopters and some of them overtook Chile due to strict obligations for the usage of E-Invoicing in that country [6]. Chile meanwhile also plans to make E-Invoicing obligatory. Meanwhile, al-most all other countries in Latin America are rapidly evolving. In Argentina, almost 350,000 companies are affected in 2014 by an extension of an E-Invoicing obligation to new sectors [7]. Brazil achieved the highest market penetration (>90%) globally for electronic invoices in the B2B/B2G segment. Meanwhile, almost 1 billion electronic invoices are exchanged every month in the country [8]. This result was possible due to the strict implementation of its E-In-voicing obligation several years ago. It is a pleasure to now see Brazil as one of the innovators

0%5%

10%15%20%25%30%35%40%45%50%

We are currentlyusing such a

solution

We are currentlydeploying such a

solution and will golive within the next

6 months

We are evaluatingthe usage of a

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We do not use anE-Invoicing

solution and haveno plans to

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Adoption of E-Invoicing Solutions in US companies


E-Invoicing / E-Billing 2014 for users in the retail segment. Recently the project Nota Fiscal Eletrnica para Consumidor Fi-nal - NFC-e was launched. The aim of the NFC-e Project is to be an alternative to current fiscal printers used in the retail segment by a fully electronic solution, based on an XML file, with a digital signature, that is authorized online before the sale. NFC-e follows the same technical and operational model of the NF-e (B2B/B2B) used for all industry and wholesale companies in Bra-zil. The expectation of the promoters is that the NFC-e will become widespread in many states of Brazil in the second half of 2014. The Chilean tax authority announced an obligation for electronic invoicing. Large businesses have until October 2014 to switch. Small companies shall implement the obligation by the end of 2017. Meanwhile, more than 50% of Chilean invoices are exchanged electronically. Colombia is also accelerating the E-Invoicing landscape. Constraints are much more flexible and market-focussed. The legislation permits technology neutrality and format flexibility (XML, PDF, TXT, etc.). In December 2013, CONPES [9] published a new concept with the aim to push the mass market in Colombia. A new resolution (planned to be published in the first tri-mester of 2014) shall include an E-Invoicing obligation, affecting 25,000 businesses. Costa Rica has stipulated the use of electronic invoicing for certain market segments (100 to 150 thousand independent professionals like doctors, dentists, lawyers, etc.). The law for this step one obligation will probably pass during this year. In 2012 the tax authority of Ecuador ran a pilot programme with 20 companies with the idea of eventually introducing mandatory issuance of electronic invoices. After successful completion of this programme the Resolution regulating the mandates was published on 17 May 2013. The Resolution establishes a schedule for the gradual introduction of mandatory electronic invoicing in Ecuador. The Resolution affects invoices, transport documentation, debit and credit notes. Taxpayers who are covered by the provisions of this law will be obliged to issue such documents electronically in the near future. A schedule with a step by step implementation plan for different market segments is published and will affect the first taxpayers from June 2014. Guatemala also has an obligation in place to issue the invoices electronically. The enrolment process was following the invoice volume top down. Since March 2013, all business are affected by this obligation [10]. Measured by absolute and relative volume of electronic invoices, Mexico belongs to the Top2 countries worldwide (together with Brazil). The last market enrolment step for an obligation shall take place in early 2014, affecting an estimated 500,000 companies. As a result, probably more than 5 billion annual electronic invoices will be issued in Mexico in 2014 [21]. In the first quarter of 2014, 1.5 billion E-Invoices were exchanged in Mexico [22]. In January 2013, Peru started a pilot project with the aim of declaring E-Invoicing as mandatory for suppliers to the public administration. The approach in Peru considers international standards (UBL 2.0 as content standard). It shall permit an easier integration with trading partners in the European Union and the APEC (Asia-Pacific Economic Cooperation) countries. Peru is going to be one of the stars of 2014. In December 2013, a new mandatory regulation was issued for the 240 largest companies, expecting them to be in full production by October 2014. They shall issue the invoices just electronically, but also the boletas (electronic receipts). In addition, some market segments have to send the invoices to the federal administration just in electronic format. The Uruguayan national tax department DGI launched a platform for electronic invoicing in 2011, with companies representing 8% of the countrys total invoice volume forming part of a pilot project. From 2013 onwards, E-Invoicing is mandatory for larger enterprises. This plan also


E-Invoicing / E-Billing 2014 leads to the first massive application of digital signatures in the country. The Uruguayan Direc-cin General Impositiva [23] expects that the estimated 24% E-Invoicing market penetration in 2014 will rise to 40% by 2015. This would catapult the country into the group of ten global lead-ers in E-Invoicing. In contrast to the rest of the world, most Latin American countries do not focus too long on evo-lution phases 1 and 2. Instead, they go straight to phase 3 (e.g. Chile) and phase 4 (Brazil and Mexico). The initiator for the market activities is in most cases the government. The driver for establishing country-wide E-Invoicing is often the reduction of tax evasion through real-time or near real-time invoice validation by tax authorities. This can be achieved by mandating an elec-tronic invoice loop between supplier, the tax authorities and the supplier. Although the legal requirements are among the strictest worldwide, some countries in Latin America have taken over the global leadership role. Not only do some of them already have good market penetration rates (Brazil with 90%), but their model is also inspiring larger countries in Asia and likely soon in Southern and Eastern Europe. Typical characteristics of E-Invoicing in Latin American countries are Unique/sequential invoice numbers provided by the tax authorities Use of digital signatures based on suppliers certificates, issued by approved or state-run Cer-

tification Authorities. Imposed XML standards for tax authority clearance Steady reporting to the tax authorities: either in real-time prior to issuance or at least

monthly. Increasing integration with the physical supply chain e.g. simultaneous print-out of ancillary

transport documents based on a pre-approved invoice After review/approval of suppliers invoices, tax authorities put a visible stamp to the E-In-

voices. It is either a country specific alphanumeric code (Mexico) or a barcode (following the standard CODE-128C in Brazil and PDF417 in Chile).

Recipients often have to validate that the invoice was pre-approved by the tax administration Tax authorities validate either the invoice data real time or data-mine to check invoices later. General archiving period is 5 years. Service providers play a key role. In some countries, service providers are accredited to perform clearance services on behalf of the tax administration; such service providers may also offer value-added services around these regulated functions. While many service providers are local, a good number of them are active in several Latin American countries and already process a very remarkable invoice volume. They belong to the largest operators worldwide and some of them are now entering into the American and European market. Some low-hanging fruits have been picked and the government has achieved a significant reduc-tion in tax evasion. Invoice issuers and recipients also have some benefits, as most invoices are no longer paper-based and operator fees generally remain affordable due to competition. How-ever, they made this first step under a great deal of time pressure and many of them did not have the chance to first start a company internal process optimisation process. There is also still much to do to generate the maximum benefits for the enterprises and the economy. In many cases, it could also be advisable to look to Europe and the US to reduce the complexity of the model.


E-Invoicing / E-Billing 2014 2.5 The European Market

2.5.1 The Business-to-Business & Business-to-Government market

2.5.1.1 Market penetration VAT compliant B2B E-Invoicing has been legally permitted in Nordic countries since around the millennium and in Switzerland since 2001. EU member states have had to accept it since 2004. Potential EU users required some time to interpret the new laws. Mainly larger businesses started their projects fairly quickly.

Figure 19: European market penetration in the B2B/B2G/G2B segment

B2B/B2G/G2B 2009 2010 2011 2012 2013 (E) 2014 (E) Electronic share 8% 10% 13% 15% 20% 24%

Status and market development differ from country to country.

Figure 20: B2B/B2G/G2B: Estimated market penetration 2014 per country

2.5.1.2 Transition from large innovators to mass market For almost a decade, solution providers, large billers and invoice recipients have shaped the mar-ket. Meanwhile, the vast majority of larger companies practice E-Billing/E-Invoicing. The market development follows the decreasing size of the invoice streams: 1. Due to high volume and low legal barriers in the B2C sector, organisations with high out-

bound volume were first, offering electronic bills to consumers via their customer portals. This development started in most European countries before the millennium. Around 2001, this Electronic Bill Presentment channel was enhanced with email delivery of PDFs, caus-ing a huge jump in the number of users. In the B2B market, the E-Invoicing market was initiated by large purchasing organisations,

>40%

15-40%


pushing their large suppliers to deliver electronic invoices.

2. Due to the fragmented invoice situation, even large organisations did not achieve satisfactory electronic volumes just with their large trading partners. That is why we are now in the mid-dle of the next evolutionary step: Addressing the SMEs. However, there is a limited but sharply increasing number of SMEs issuing and receiving electronic invoices. In most cases, SME projects have been initiated by large trading partners having pushed them to do so.

3. The next evolutionary step will be E-Invoicing on the mass market. The various initiatives by the national public sectors and the European Commission could result in the break-through in this sector.

2.5.1.3 Adoption and differences in various market segments

Figure 21: Portion of European E-Invoicing users

Source: Several country surveys & Billentis

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1-9 10-49 >250

% o

f all

ente

rpris

es

Number of Employees

E-Invoicing users (issue and/or receive)


E-Invoicing / E-Billing 2014 Figure 22: Portion of E-Invoices received within European companies

Source: Several country surveys & Billentis

2.5.1.4 Exchange formats The usage of formats and channels differs a great deal depending on the country and the size of companies. It is extremely rare for companies to issue or receive invoices just in one electronic format. Conclusions for the European market Multi-channel exchange strongly dominates the landscape There are already some suppliers offering invoices just in electronic format (e.g. online

shops) Exchange via E-Mail is more popular than via EDI E-Mails are preferred by SMEs, but are also often accepted by larger companies The long-term intention of most stakeholders is to exchange, process and archive most electronic invoices in a structured format. The high-volume industries (e.g. retail, automotive) were able to establish this in the first stage of market development. EDI, and in later years XML, dominated the E-Invoicing landscape. Trading parties were typically larger enterprises. The more the mid-sized and smaller companies entered into the E-Invoicing market, the more the PDF volume in-creased. The benefits of image-based PDFs are mainly limited to cheaper transport and archiv-ing, but process automation does not really happen and cost savings stay limited. In recent years, a combination of PDF+XML invoices gained ground. Either this happens with two separate files, or a XML data set is embedded in the PDF. This seems to be an appropriate way to fulfil the requirements of large, mid-sized and small enterprises. It could be a way to re-duce the current dominance of just image-based PDFs.

010203040506070

1-10% 10-29% 30-50% 50-100%% of

com

pani

es re

ceiv

ing

E-In

voice

s

% of invoices received electronically

Share of Invoices received electronically


E-Invoicing / E-Billing 2014 Figure 23: Proportion of various invoice formats

The public sector would definitively be in the position to change the picture completely for the benefit of structured E-Invoices. This is at least in progress in some countries. Governments mandating its suppliers to send invoices just in electronic format typically ask for XML and do not permit PDFs.

2.5.1.5 Distribution channels The supplier direct model is currently dominating in many countries like Austria, Germany and the UK. Smaller pioneer countries intend to have a clear preference for E-Invoicing network op-erators: Belgium, the Nordic countries, Slovenia and Switzerland.

2000 2010 2020

Pure structured dataEDI, XML

HybridPDF + XML

Pure ImagesPDF,

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%


E-Invoicing / E-Billing 2014 Figure 24: Invoices received by European enterprises according to delivery channels

Source: Billentis The jump in the number of directly exchanged electronic invoices is mainly a statistical effect. Due to the new l

Documents

Esker-Billentis Market Report 2014